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India abolished estate duty in 1985. No inheritance tax has been imposed since.
On death, the transfer of property to heirs (whether by Will or intestate) is not a taxable event. No gift tax applies to inheritance.
Occasional political debate has explored reintroducing inheritance tax. No concrete proposals have materialised. Current planning assumes continued absence.
When you inherit property in India, your cost basis is generally the deceased's original cost — not the fair market value on the date of inheritance.
For immovable property acquired before 1 April 2001: the FMV as of 1 April 2001 can be used as the cost basis. This is a beneficial rule for property held for a very long time.
For immovable property acquired on or after 1 April 2001: the deceased's original acquisition cost is your cost basis (adjusted for indexation for LTCG calculation).
For other assets (shares, mutual funds, gold): generally the deceased's original cost is your cost basis, with holding period counting from the deceased's original acquisition date.
When you sell inherited property, you owe capital gains tax. Rates:
Long-term capital gains (LTCG) for immovable property held over 2 years: 12.5% under Section 112 (post-2024 Finance Act rules).
Short-term capital gains (STCG) for immovable property held under 2 years: applicable slab rate.
LTCG for listed equity shares and equity mutual funds held over 1 year: 12.5% on gains above ₹1.25 lakh threshold.
LTCG for other assets held over 2 years: 12.5% without indexation.
For inherited property, the holding period includes the deceased's holding period. So property inherited from a parent who held for 15 years is long-term to you immediately.
Historically, LTCG on immovable property used indexed cost of acquisition. The July 2024 Finance Act removed indexation for property acquired after 22 July 2024. For property acquired before 22 July 2024, taxpayers can elect either indexation-based calculation or the new 12.5% flat rate, whichever is lower.
For inherited property, whether indexation applies depends on when the deceased acquired it. If pre-22 July 2024, indexation election is available.
Practical implication: for inherited property likely to be sold soon, calculate tax under both methods to choose the lower.
Section 115BBH applies flat 30% tax on all VDA gains regardless of holding period. No indexation benefit.
For inherited crypto, this rate applies to subsequent sale. Cost basis is the deceased's original cost.
This tax rate makes inherited crypto disadvantageous compared to inherited immovable property or equity. Plan accordingly.
Inherited PPF: on maturity distribution, the accumulated balance is tax-free to the recipient (subject to PPF rules on withdrawal).
Inherited EPF: the accumulated balance is tax-free if the deceased had over 5 years of service and the withdrawal is by the family after death. Interest earned post-death may be taxable.
Inherited NPS: 60% can be withdrawn tax-free by the nominee (annuity portion is separate).
For each fund type, verify current rules — retirement fund tax rules are periodically updated.
When an heir sells inherited property valued above ₹50 lakh, the buyer must deduct 1% TDS under Section 194IA. This applies whether the seller is inheriting or original owner.
The TDS is credited to the seller's tax account. If the seller's actual liability is lower (due to indexation or exemptions like Section 54), refund is claimed via tax return.
For inherited property with substantial appreciation, the TDS is deducted upfront but the ultimate liability depends on the seller's overall tax position.
NRI inheriting from Indian estate: no Indian tax on the inheritance itself.
Subsequent sale by NRI: capital gains tax applies. Rates same as for resident Indians, but TDS is 20% for NRI sellers (higher than 1% for residents).
Repatriation of sale proceeds: FEMA rules apply. USD 1 million per financial year cap under the inherited-assets provision.
Home country tax may apply on the inheritance depending on the NRI's country of residence. Consult local tax advisor.
Section 54: LTCG on sale of residential property is exempt if reinvested in another residential property within 2 years (purchase) or 3 years (construction).
Section 54F: LTCG on sale of other long-term assets is exempt if reinvested in a residential property.
Section 54EC: LTCG can be exempted (up to ₹50 lakh per year) by investing in specified bonds (REC, NHAI, PFC, IRFC).
For inherited property being sold, planning around these rollovers can significantly reduce tax.
India abolished wealth tax in 2015. No annual tax on holding wealth.
Occasional political discussion of reintroduction. Current planning assumes no wealth tax.
For lifetime transfers (not on death), Section 56(2)(x) taxes recipients of gifts above ₹50,000 per year (with exemptions for gifts from specified relatives).
Gifts from parents, siblings, spouse, children, and specified relatives are exempt. Gifts from friends or non-relatives above ₹50,000 are taxable to the recipient at slab rates.
Practical implication: lifetime gifting to family members is generally tax-efficient. Large gifts to non-family members carry tax implications.
Time asset sales to align with holding period requirements for LTCG.
Use Section 54 rollovers where possible.
For substantial estates, consider trust structures for ongoing tax optimisation.
For NRI heirs, coordinate Indian tax planning with home country tax rules — some countries tax inheritance from abroad.
For families with substantial wealth, engage a chartered accountant alongside your advocate for coordinated planning.
India's absence of inheritance tax simplifies estate planning compared to many countries. But capital gains implications, cost basis rules, and NRI considerations all require thoughtful planning.
For substantial estates, tax optimisation is a component of Succession Planning (₹1,00,000) engagement. Working with both an advocate and a chartered accountant produces the best outcomes.
This is general legal information, not legal advice. For your specific situation, consult a Law Tarazoo advocate.
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